Inclusive Innovation Forum: Start-Up, Scale-Up

Welcome to the fourth newsletter of the Inclusive Innovation Forum. Following the roundtable led by the Government’s Chair of the Commission on Race and Ethnic Disparities, we crossed the House of Commons for our fourth roundtable to discuss the findings of the Labour Party’s recent Start-Up, Scale-Up review, which provides crucial insights on how the Party would aim to achieve one of the guiding ambitions of a potential future government: to make Britain the best place to start, and to grow, a business.

Roundtable Insights
The Start-Up, Scale-Up review includes data that reinforces the notion that investing in founders of colour has a substantial and positive economic impact. One respondent to their call for evidence calculated that if entrepreneurship among ethnic minority founders was increased to the average level, this could add a further £15-20 billion to UK GDP.

The discussion was opened by Tom Adeyoola, Co-founder of Extend Ventures, who sat on the panel of the Labour Startup Review. A central theme of the review and Tom’s talk was how to encourage growth. “There are only three ways to generate growth: more people, more productivity, and mining untapped resources. Untapped resources refer to communities and regions that have not been given fair access to funding opportunities. If it is possible to remove structural biases and systemic issues, then there could be improvements on the capability, capacity, and outcomes of UK PLC.”

But, how can we facilitate greater access to capital for entrepreneurs in the UK and ensure that this access is distributed more equitably? Adeyoola thinks we need to follow the money. One of those routes is pension funds: “Pension fund capital is probably the most diverse asset class of capital in the UK, yet Canadian pension funds invest more in UK start-ups than UK-based funds. This means that people in the UK do not receive stakes in the success. It reinforces the importance of connecting capital to broad and diverse sources of capital through the system, to get more alignment around where the money is going”. But convincing pension funds to invest in the venture asset class is challenging, says Amina Ahmad, head of community and content at Diversity VC. Pension funds are known to be more risk averse in the UK – they need a change of culture that enables them to take more risks into startups as an asset. 

According to Adeyoola, we also need to address the issue of equitable access to capital for entrepreneurs. He proposes government develop an Investing in Ethnic Diversity Code – similar to the Investing in Women Code – to bring to light the lack of equity in capital distribution and provide recommendations. It’s also important that the government commits to ongoing engagement with the topic and establishes working groups under each recommendation area to implement them quickly and create real tangible outcomes.

Another way to promote more investment into ethnically diverse founders is to diversify who deploys capital. We should be looking at global tech hubs – like Tallinn, Estonia, for example – that have a founder culture of reinvesting into the ecosystem. As entrepreneurs and senior operators experience a liquidation event, they should be encouraged and incentivised to invest in UK startups. “We need the UK to recycle wealth from the older generation into turbocharging the younger generation — we need to create that virtuous cycle,” says Adeyoola. 

Alongside recycling cash, the roundtable discussed needing more visibility of diverse role models. Investing through a mirrortocracy lens – not on merit but in people who “mirror” other successful people – hinders investment into people of colour. Roundtable participants argued that, alongside increased data and awareness that illustrates the benefits and increased returns of investing in ethnic minority founders, investors need to see more success stories to further convince them. Role models also encourage future entrepreneurs to believe they can also build: “The importance of role models is crucial to show young people how and why they might want to consider, even in a recession, or because of a recession, the opportunities of entrepreneurship,” says Richelle Schuster, Head of Innovation Programme at Leeds City Council. 

Another suggestion raised was putting pressure on entities providing funding to ensure that they invest more equitably across the board. This could look like quotas, a code of conduct or key goals.

In addition, participants largely agreed that there needs to be improved guidance and support for founders to help them navigate more open and diverse funding sources. This isn’t to enable venture capital investors to ignore ethnic minority founders but to provide founders with greater options to increase chances of success.

Sanghamitra Karra, EMEA Head of the Inclusive Ventures Lab, welcomed the thoughtfulness and the research undertaken to provide a snapshot of the start-up ecosystem in the UK for the purpose of the report and the roundtable discussed ways to make the findings actionable irrespective of the party.